The transition to lower-carbon energy sources, such as renewables, is inevitable. The world can't burn fossil fuels forever. They're a finite resource that do damage to the environment.
Given this backdrop, investing in renewable energy stocks is a logical choice. Brookfield Renewable (BEPC -2.25%) (BEP -0.68%) and Clearway Energy (CWEN.A -1.39%) (CWEN -1.74%) are leaders in this space. They also pay attractive and growing dividends. These features make them compelling stocks to consider buying with $500 right now.
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Double-digit growth through at least 2030
Brookfield Renewable is one of the world's largest renewable power producers. It operates hydroelectric, wind, solar, and energy storage facilities that generate very stable cash flow backed by long-term, fixed-rate power purchase agreements (PPAs). Brookfield sells about 90% of the power it produces to utilities and large corporations under PPAs with an average remaining term of 14 years. Those PPAs provide it with very stable cash flow to cover its 3.6%-yielding dividend. Brookfield could turn a $250 investment into a $9 annual income stream at that rate.
Most of its PPAs link power rates to inflation (70% of its revenue). As a result, its funds from operations (FFO) are stable and steadily rising (2%-3% annually on inflation escalation alone). Meanwhile, the market price for renewable power is rising faster than inflation. That allows Brookfield to sign higher-rate PPAs as legacy agreements expire. For example, it signed a framework agreement to provide Google with up to 3 gigawatts of hydropower in the coming years. The initial 670-megawatt PPA represents more than $3 billion of future revenue. Margin enhancement activities like that should add another 2% to 4% to its FFO per share each year.
Additionally, Brookfield is investing heavily to expand its portfolio. It has a massive pipeline of renewable energy development projects, which should add another 4% to 6% to its annual FFO per share. The company also has a history of making accretive acquisitions. Brookfield recently agreed to invest $1 billion to boost its stake in a Colombian hydropower company, which should add about 2% to its FFO per share next year. Adding up all these growth drivers, Brookfield forecasts more than 10% annual FFO per share growth through 2030. Since growing FFO per share increases the cash available to pay dividends, this supports its plan to raise its dividend by 5% to 9% each year. Brookfield has grown its payout at a 6% compound annual rate since 2001.
Visible growth through 2027
Clearway Energy owns a portfolio of clean power generating assets, including wind, solar, battery storage, and natural gas, all secured by long-term PPAs. These contracts support its 5.5% dividend yield. Clearway could generate nearly $14 of annual dividend income from a $250 investment at that dividend rate.
The company has lined up several new investments that it expects to close over the coming year. This drives the company's outlook for growing its cash available for distribution (CAFD) from $2.08 per share at the midpoint of this year's guidance range to at least $2.70 per share by 2027, representing a roughly 30% increase. That powers its plan to increase its dividend payment from the current annualized level of $1.78 per share to $1.98 per share by the end of 2027 (an 11% pay bump).
Clearway expects to have plenty of power to continue growing beyond 2027. It's pursuing projects to enhance its existing operations by repowering legacy wind farms and adding battery storage. It can also acquire recently developed projects from a related party or make third-party acquisitions. These activities drive CAFD per share growth, which Clearway believes will be within or above its 5% to 8% annual target range beyond 2027. That provides a solid foundation for continued dividend increases.
High-powered total return potential
Brookfield Renewable and Clearway Energy generate steady cash flow from their extensive clean power portfolios. This enables them to pay attractive dividends while investing in the expansion of their operations. These growth investments should support ongoing dividend increases and strong total returns for investors. A $500 investment could significantly increase in value in the coming years while also delivering an attractive and steadily rising income stream.
